EXPRESS #4 - September 4, 2018
It has become received wisdom that at some point the world will reach “peak oil demand”, mostly as a result of the expected revolution in electric mobility.
This may well be so. The question is when that moment might come. And what will happen before it comes.
According to Dutch energy analysts Jilles van den Beukel (ex-Shell) and Lucia van Geuns, there are reasons to expect a tighter oil market and higher oil prices in the medium term (the period 2020-2025).
In a study written for The Hague Centre for Strategic Studies (HCSS), they argue that as a result of “the low number of sanctioned projects in the years following the big 2014 oil price drop”, “US shale reaching a plateau”, and “shale oil outside the US not being able to replicate the rapid growth of US shale oil”, an oil price is likely, perhaps even a price spike.
They see current prices as already moving in that direction, as shown in this chart:
The authors warn that our society might not be prepared for such an oil shock. They note that “many people are focused on peak oil demand and the risk that stranded assets” form to oil and companies and society. “But how about the opposite: that we are not prepared for the tight oil markets prior to peak oil?”
And they add that this could be a problem for Europe in particular. “Whilst the US is moving towards energy independence, Europe is becoming more dependent on Middle East oil and Russian gas. Whilst very much preoccupied with the energy transition, we are still heavily dependent on fossil fuels at this stage.”